A crisis is looming for pensioners in Northern Ireland as workers are unrealistic about how much they need to put aside for a comfortable retirement, it was claimed today.
Research on the so-called 'savings gap' by financial and technology services firm, True Potential, found that people in Northern Ireland regard £21,443 as a comfortable retirement income.
It surveyed hundreds of people of all ages in Northern Ireland and 8,000 UK-wide, from 20 somethings to 60-plus – with younger respondents having higher expectations.
But they found that over the last 12 months, Northern Irish savers have put aside £1,653.40 towards their pension pot – and at that rate, and saving for 45 years, they would have no money after just four years if they spent £21,000 every year.
Responding to the research, Keith Storey of ASM Financial Planning said: "The average man on the street doesn't realise what it costs to build up a fund large enough to generate sufficient income when you retire."
According to True Potential, for an income of around £21,000, someone would need a nest-egg of £428,860 and draw down 5% over 20 years.
In fact, savers are on course to build a fund of just £74,403, which would leave annual incomes of just £3,720 per year.
True Potential said people urgently needed to rediscover the savings habit if they were to meet their aspirations. But Mr Storey said with average salaries here at around £20,000 to £25,000, most people did not expect to retire to an income of £21,000.
Restrictions on how you can use your pension fund are due to be lifted in April 2015.
Under the old system, use of a fund was restricted to withdrawing a tax-free lump sum, followed by an income which was paid by an annuity or withdrawn from the fund within defined limits.
Mr Storey said: "In our experience, we have yet to see people run out of their pension savings, but people will soon have full access to their fund and this could create some problems.
"Savers will either be very disciplined or will need to save a lot more to build a larger fund to ensure that it does not run out."
People are likely to receive the equivalent of £145 per week in their state pension if they worked for long enough, he said – though state pension age will soon be pushed to 67 for those who were born after April 1967.
And under workplace pensions (the new auto-enrolment regime), people will have to save 7% of earnings – of which 3% will be set aside by the employer – from October 2018.
Mr Storey said: "This will help savers build up pension savings but the reality is that they may have to save more if they want a higher income in retirement."
Since October 2012, employers have been required to enrol eligible workers in workplace pensions.
This applies if you are aged 22 or over, are under state pension age and earn more than £10,000 a year work in the UK. The full basic state pension is £113.10 per week for a single person in during in the current tax year.
A workplace pension allows you to save extra money. There are many benefits to having a workplace pension.
Your employer will pay into it and the government will also pay into it, in the form of tax relief. Your workplace pension belongs to you, even if you leave your employer in the future.
An example would be a worker earning £24,000 a year. This is his gross basic salary. He is paid monthly.
He could pay in four per cent of his gross basic salary and this would be matched with an employer’s contriubtion of 3%, plus tax relief equivalent to 1%.
This means the worker would pay £80 a month out of his salary and the contributions from his employer, plus tax relief, would also amount £80, making £160 in total.